How to Calculate LTV: Formulas, Examples and the LTV/CAC Ratio

Two companies each bring in R$500,000 a month. The first spends R$90 to win a customer who buys once and disappears. The second spends the same R$90, but that customer comes back five or six times over two years. On this month's sales report, the two look identical. Twelve months later, one is compounding and the other is bleeding cash.

The difference between them shows up in no campaign dashboard. It shows up in LTV, which is why lifetime value belongs on the first page of any growth analysis instead of buried in a spreadsheet tab nobody opens.

To calculate LTV (lifetime value), multiply average order value by purchase frequency and average customer lifespan. Example: R$180 × 2.5 purchases per year × 2 years = R$900. For subscription businesses, divide average monthly revenue per customer by monthly churn: R$300 ÷ 3% = R$10,000.

What LTV shows you (and what it hides)

LTV estimates how much revenue a customer generates over their entire relationship with your business. It answers the question monthly revenue never will: how much is this customer worth, not just this sale?

In practice, LTV sets the ceiling on what you can afford to pay for acquisition. If each customer is worth R$900 over their lifetime and costs R$300 to acquire, there is room to grow. If they are worth R$900 and cost R$800, every new sale is close to a tie, and any increase in media costs turns into a loss.

What LTV hides: it is an average, and averages lie. An LTV of R$900 can mean a homogeneous base of R$900 customers, or 10% of excellent R$5,000 customers mixed with a majority who buy once and vanish. Before making decisions on the aggregate number, segment by acquisition channel, entry product, and customer profile. It is common to discover that a channel with cheap CAC attracts precisely the customers with the worst LTV.

How to calculate LTV: three formulas in practice

There is no single formula. There are three variations, and the right one depends on your business model and the quality of your data.

1. Simple formula (revenue)

LTV = average order value × purchases per year × years of retention. It is the entry point: easy to compute with CRM or e-commerce platform data. The problem is that it measures revenue, not profit. It works for comparing periods and segments, but it overstates what a customer is actually worth.

2. Margin-adjusted formula

LTV = average order value × purchases per year × years of retention × gross margin. This is the version that should drive investment decisions. An e-commerce business with a 30% gross margin that calculates LTV on revenue is working with a number three times larger than the money actually left to pay for acquisition, operations, and profit.

3. Subscription formula (SaaS and recurring revenue)

LTV = average monthly revenue per customer ÷ monthly churn (ideally multiplied by gross margin). If churn is 3% per month, average customer lifespan is 1 ÷ 0.03, roughly 33 months. This formula breaks when churn is very low or unstable: at 0.5% churn it projects 200 months of retention, over 16 years, which no young company has the history to support. In those cases, cap the projection at 3 to 5 years.

Formula	When to use it	Limitation
AOV × frequency × retention	Retail and e-commerce, first pass	Measures revenue, not profit
Same formula × gross margin	Budget and media decisions	Requires knowing your real margin
Monthly revenue ÷ churn	SaaS, memberships, subscriptions	Distorts with low or volatile churn

What is a good LTV/CAC ratio?

The LTV/CAC ratio compares what a customer is worth against what it cost to win them. The classic SaaS benchmark, popularized by American investors, is 3:1: a customer should be worth at least three times their acquisition cost.

But the number alone says little. The useful reading is by range. Below 1, you are paying to lose money on every sale. Between 1 and 3, the business survives but has no slack to cover operations, payroll, and campaign mistakes. Around 3, growth and profitability are in healthy balance. Above 5, the signal flips: you are probably underinvesting in acquisition and leaving growth on the table for a competitor to take.

One detail almost nobody applies: compute the ratio with margin-adjusted LTV, not revenue LTV. A 3:1 LTV/CAC on revenue, in an operation with 30% margin, is actually 0.9:1 on gross profit. The company believes it is growing healthily while funding losses with working capital.

LTV in practice: SaaS, e-commerce, and services

B2B SaaS

A management software company charges R$300 per month and loses 3% of customers monthly. Average lifespan: 33 months. Revenue LTV: R$10,000. At an 80% gross margin, typical for software, real LTV is R$8,000. If CAC is R$2,400 counting media, sales team, and tools, the ratio lands at 3.3:1. Healthy, with room to test more expensive channels.

E-commerce

A supplements store has an average order of R$180, with customers buying 2.5 times a year for 2 years. Revenue LTV: R$900. At a 30% gross margin, real LTV drops to R$270. With a R$90 CAC, the ratio is 3:1. A manager looking only at revenue would think they could pay up to R$300 per customer, and would break the operation within months.

Recurring services

An agency charges a monthly fee of R$2,500 and the average contract lasts 14 months. Revenue LTV: R$35,000. At 40% margin after team costs, R$14,000. If winning a client costs R$4,000 in prospecting and proposals, the ratio is 3.5:1. In this model, extending the average contract by 3 months is worth more than any discount on acquisition.

In all three cases, the math uses data that already exists: CRM, payment platform, and media reports. The hard part is not the formula, it is joining the sources. Teams that track marketing KPIs in spreadsheets disconnected from finance almost never close this number.

How to grow LTV without growing CAC

Growth math has two sides, and the retention side is usually the cheaper one. Bain & Company estimates that increasing customer retention by 5% lifts profits by 25% to 95%. And according to Harvard Business Review, acquiring a new customer costs 5 to 25 times more than keeping an existing one.

In practice, four levers move LTV. Repeat purchase: email flows and replenishment offers timed to the product's real consumption cycle. Order value: bundles and upsells at the moment of purchase, not weeks later. Retention: spotting the behavior of customers who churn before they churn, like declining usage or late payments. And acquisition mix: cutting channels that bring low-LTV customers, even when the paid traffic metrics look great inside the ad platform.

That last lever is the most neglected. Managers optimize campaigns on cost per conversion and celebrate a low CAC, without noticing the channel attracts coupon hunters who never return. LTV by acquisition channel is the cross-analysis that cures that blindness.

Frequently asked questions

How do I calculate LTV and CAC together?

Calculate each separately, then divide: LTV ÷ CAC. LTV comes from average order value, frequency, and retention (or monthly revenue ÷ churn for subscriptions). CAC is total marketing and sales spend divided by the number of new customers in the same period.

What is a good LTV for e-commerce?

There is no absolute value: a good LTV sits at least 3 times above your CAC, calculated on gross margin. An e-commerce with an LTV of R$270 and a CAC of R$90 is healthier than one with an LTV of R$900 and a CAC of R$500.

How do I calculate LTV in Excel?

Set up four columns: average order value, purchases per year, years of retention, and gross margin, then multiply all four. For subscriptions, use average monthly revenue divided by monthly churn. Excel's limit appears when you want to segment by channel or cohort, which requires joining data from several sources.

How do I calculate LTV for SaaS?

Divide average monthly revenue per customer by monthly churn and multiply by gross margin. Example: R$300 ÷ 3% × 80% = R$8,000. If churn is below 1% per month, cap the projection at 3 to 5 years so the number does not inflate.

What is the difference between LTV and average order value?

Average order value measures one purchase; LTV measures every purchase across the customer relationship. Two businesses with the same order value can have completely different LTVs if frequency and retention differ.

LTV is a decision, not a report

LTV is only worth something when it changes a decision: how much to pay per customer, which channel to cut, which segment to prioritize. And the reason so few companies use it is operational, not conceptual: the data lives in systems that do not talk to each other, and closing the number takes hours of spreadsheet work every month.

That manual work is what Sherlok removes. By connecting Meta Ads, Google Ads, GA4, your CRM, and spreadsheets in one place, you ask in plain language, "what is LTV by acquisition channel over the last year?", and get the analysis ready, no exports needed. The calculation this article taught becomes a ten-second question.